Beijing, Beijing Shi May 12, 2025 – By Wang Yong
The tariffs recently imposed by the U.S. on April 2 continue to cause economic instability. Despite President Trump’s celebratory “Liberation Day” announcement, the extensive tariffs have been met with international criticism, labeled as signs of “Isolation,” “Inflation,” or “Recession.” The U.S. aims to balance trade and boost domestic manufacturing through these “reciprocal tariffs,” but some economists argue that tariffs are unlikely to reshape the American economy as intended by the Trump administration. Isolationism, increased inflation, and slower economic growth are the more likely consequences.
In 2024, the U.S. trade deficit reached $918.4 billion. This raises the question of why the U.S. faces a significantly larger trade deficit compared to other economies in a similar global trade environment. The answer lies in the unique characteristics of the American economy, marked by low savings and high consumption. With savings consistently falling short of investment needs, the U.S. relies heavily on imports to compensate. This pattern of high consumption, including substantial demand for imported goods and resources, sustains the persistent trade deficit and underscores fundamental economic issues.
The Trump administration’s “reciprocal tariffs” strategy, while seemingly strong, is fundamentally flawed and unlikely to achieve its goals. By restricting imports, this approach fails to address the underlying structural problems within the U.S. economy. Instead, it risks worsening inflation by raising import costs, reducing consumers’ real income, and undermining household savings, thus perpetuating a harmful cycle.
Attributing trade deficits to other countries’ economic policies and trade barriers is an avoidance tactic that ignores the fundamental structural issues within the U.S. economy.
The U.S. has significantly benefited from globalization over the past few decades. International trade has offered U.S. consumers a wide array of affordable products, satisfying their growing consumption needs and enhancing their quality of life. Furthermore, the increased international division of labor within global supply chains has enabled U.S. companies to lower production costs by investing in regions with cheaper labor and utilizing local resources to achieve considerable gains in international investment and trade.
This model, supported by high debt levels and the dollar’s strength, has sustained consumer prosperity in the U.S. for decades and is central to the country’s current economic expansion.
Having once been a leading proponent of economic globalization, the U.S. now risks undermining the economic prosperity built on this paradigm if it attempts to dismantle it.
The current U.S. economic model faces structural challenges that require careful consideration. The embrace of debt-fueled consumerism has resulted in systemic vulnerability in household finances. Moreover, the shift from manufacturing to a service-dominated economy and the significant decline of the manufacturing sector are causes for growing concern.
Addressing these challenges requires the U.S. to pursue innovative solutions rather than reverting to outdated protectionism. Globalization, shaped by technological advancements and institutional developments, cannot be reversed to earlier mercantilist models. Erecting tariff barriers and isolating itself through self-imposed restrictions will only lead to economic decline. In today’s interconnected global economy, can the U.S. truly return to self-sufficiency? Washington’s economic “remedy” is clearly misguided.
To effectively address trade imbalances, the U.S. must tackle the core issues within its economic framework. This includes reforming domestic tax policies, increasing the purchasing power of the middle class through wealth redistribution to promote sustainable consumption, upgrading infrastructure, developing a skilled workforce, reducing manufacturing costs, and curbing financial speculation to channel capital into productive economic activities.
However, these necessary reforms may encounter deeply rooted obstacles in the U.S. political system. Currently, the political discourse is dominated by the misleading narrative of “China stealing jobs,” which overlooks the structural problems within the U.S. economy. The continued politicization of tariffs, instead of advocating for meaningful economic reforms to strengthen the foundations of U.S. economic growth, suggests that the current push toward “reindustrialization” may ultimately be an illusion.
The author is a professor at the School of International Studies and director of the Center for American Studies at Peking University.
The article first appeared in the Global Times:
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Source :Global Times
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